Category Archives: Income Driven Repayment Plan

Liz Stapleton wrote about her experience getting kicked off her income-driven repayment plan for MagnifyMoney. Overnight, her monthly student loan payment skyrocketed from $365 to nearly $2,000.

I graduated from college at the onset of the recession in 2008 and graduated from law school just in time for the recession to hit the legal market in 2011. By the time I finished with both my degrees I had $193,000 of federal student loan debt, which has since grown to over $250,000. Needless to say, I’ve never been financially able to make student loan repayments under the standard repayment plan.

Once my six-month student loan grace period ended in 2011, I immediately signed up for an Income-Driven Repayment Plan with each of my three loan servicers.

Every borrower enrolled in one of these plans has to renew their eligibility through their loan servicer every year. Since I have three servicers, that means at this point I have been through the renewal process 18 times. The first 17 recertifications went off without a hitch.

So I was stunned when I found out my 18th and most recent submission for recertification through one of my three loan servicers was denied. That was it — I was kicked out of the program. Suddenly, my monthly payments of $362 were going to balloon to nearly $2,000.

I got on the phone with the lender right away, determined to find out why I was booted from the program. In the end, I was able to successfully re-enroll.

Why my income-driven repayment renewal was denied

It turns out my status as a self-employed worker was to blame.

After I was laid off from my job as a solutions consultant at the end of 2016, I started a business as a freelance writer in 2017. One of the requirements to recertify your eligibility for income-driven repayment plans is to submit proof of income. When I was working full time, that was no problem. I just used records of my pay stubs to verify my income.

But now that I was self-employed, I didn’t have pay stubs. Early in 2017, when my deadline to recertify with one of my loan servicers was approaching, I called them and asked what documents I could use to verify my income.

I was told that all I needed was a self-certifying letter stating that I’d been laid off and was now self-employed as a freelance writer. I also needed to include my gross monthly income. I wrote the letter and stated what my approximate monthly income was thus far, and my submission for recertification on the Income-Driven Repayment (IDR) Plan was approved, no problem.

But remember that I have three different loan servicers. So I had to go through the same process with the other two as well. Unfortunately, when I tried to use the same strategy to renew my certification with my second servicer, I was denied.

I was shocked and stressed out, to say the least.

Resubmitting my application

I called this loan servicer and asked why I had been denied. At first, the representative I spoke with told me there wasn’t sufficient documentation of income. When I asked why my self-certifying letter wasn’t enough, the representative on the phone explained that it usually was enough. I pressed her to find out what exactly was wrong with my letter that had resulted in a denial. It turns out, they didn’t like that I used the word “approximate” when stating my gross monthly income. They needed a firm number. Additionally, they wanted a work address.

I rewrote the letter to take out the word “approximately” and explained that as a self-employed freelance writer I worked from home and had no additional company address. I submitted my forms again and crossed my fingers.

In the meantime, my loan servicer agreed to put my loans into deferment for one month. That would ensure that I wouldn’t get hit with my new larger payment the following month.

Here’s what the application looks like to re-certify your enrollment in an income-driven repayment plan. Download a copy at https://studentaid.ed.gov.

The long wait for news

After I resubmitted my IDR Plan recertification application, I was told I would hear back within 10 days. It was nearly a month before I heard back from them in June. It was good news – my documents were approved, and I would be enrolled in my new IDR Plan starting in August.

But the celebration was short-lived.

Since I had only been granted a one-month deferment, which covered me for June, and my new IBR Plan wouldn’t kick in until August, that meant I would have a gap in July. And I’d have to pay my new, larger monthly payment. I couldn’t afford the payment of nearly $2,000 and to miss it would mean defaulting on my loans. Defaulting on federal loans could mean losing access to the income-driven repayment plans as well as forbearance and deferment options, not to mention it would wreak havoc on my credit.

Once again I was caught off guard and stressed out. And, once again, I called my loan servicer to find out why the new plan wasn’t being applied sooner. Apparently, the billing cycle had already passed for July.

To solve the problem, I requested another month of deferment for July, which I was granted.

Asking for a forbearance or deferment is never fun, but it is always better than defaulting on your loans and losing access to those options and flexible repayment plans.

What to do if your recertification is denied

Be proactive. One of the biggest lessons I learned from this ordeal is that it pays to be proactive. Don’t count on the loan servicer sending the paperwork you need to fill out; you can find a recertification document here. If you are struggling with payments, you have to take action. Ask your loan servicer questions to find out what might work best for you, a new payment plan or a temporary forbearance or deferment. If your loan servicer is being stingy with answers, persist, do not hang up the phone until you have the answers you need.

Don’t be shy about requesting deferment or forbearance. Loan servicers won’t necessarily anticipate that you may need a deferment or forbearance if your repayment plan is denied. So be sure to ask.

Resubmit your application. It isn’t unusual to have your recertification denied for a number of reasons. For example, if you are a salaried employee, paid biweekly, and only submit one pay stub, you could be denied for not demonstrating an entire month’s worth of income. But remember, you don’t have to accept that denial as final; you can usually resubmit if something was wrong with your original submission.

The Bottom Line: Not all loan servicers are created equally

As I learned the hard way, some loans servicers are pickier about the language you use on your renewal forms than others.

“For those that are self-employed, some [servicers] will have specific requirements in the phrasing of the documents used to certify income,” says Columbus, Ohio-based financial advisor Natalie Bacon. “What works for one loan servicer may not work for another.”

The biggest lesson I learned was not to assume that just because one loan servicer accepted my documentation, the other loan servicer would as well. It’s always important to communicate with each of your student loan servicers.

Have you looked into the Pay As You Earn (PAYE) Repayment Plan offered by the U.S. Department of Education, only to realize you don’t qualify? Then you’ll be interested to know about the Revised Pay As You Earn (REPAYE) Repayment Plan.

PAYE is only available to borrowers who took out student loans from the Federal government after October 2007. Unfortunately, that restriction excluded about 5 million borrowers that could have otherwise benefitted.

The solution for those 5 million borrowers is REPAYE. Regardless of when you took out student loans, you can apply for this Income-Driven Repayment Plan.

What’s the Difference Between PAYE and REPAYE?

Other than the eligibility requirements, there are a few differences to be aware of. Under PAYE, your monthly payment is capped at 10 percent of your discretionary income, and it will never exceed your payment under the 10-year Standard Repayment Plan. REPAYE, on the other hand, only caps your monthly student loan payment at 10 percent of your discretionary income, there is no guarantee to keep you from paying more than what you would under a 10-year Standard Repayment Plan .

You may know that Income-Driven Repayment Plans qualify for forgiveness after 20 or 25 years. The same holds true for REPAYE. If you hold an undergraduate degree, your loan balance will be forgiven after 20 years, and if you hold a graduate degree, your loan balance will be forgiven after 25 years. Under PAYE, loan balances are forgiven after 20 years. Just remember that the amount forgiven may be subject to tax.

If you’re married, it doesn’t matter whether you file jointly or separately. Income documentation for your spouse and yourself is required upon applying. With PAYE, you only need to supply income documentation for you and your spouse if you file jointly.

One last difference occurs in what happens when your payment isn’t enough to cover the interest that accrues on your balance. On subsidized loans under REPAYE, you’re not responsible for paying the difference between your monthly payment and the remaining interest that accrues for the first 3 consecutive years. Further, after those 3 years have passed, you’re still only responsible for paying half the difference. PAYE only offers the benefit of not having to pay the difference for the first 3 consecutive years.

Why Should I Sign Up Under the REPAYE Repayment Plan?

There’s no reason not to see if you qualify for REPAYE, as it doesn’t have extra income eligibility requirements like other Income-Driven Repayment Plans. As with any repayment plan, you want to make sure it’s a good solution for you.

REPAYE is the Best Repayment Plan for me – How do I Sign Up?

The government has been working to make it as easy as possible to switch repayment plans, and you can do so by filling out a form online.

To start, you’ll need your FSA ID to sign in. If you know your login information, head to the main page of studentloans.gov here. There will be a small box with a green “Log In” button – click this to enter your username/email and password.

If you haven’t created an FSA ID, or don’t remember your information, don’t worry. You can have a security code sent to your email, or you can answer 3 of 5 challenge questions correctly to reset your password. Creating an FSA ID requires you to fill out a short form.

Once you’re in, you may be prompted to review your account settings. Give those a look over; agree to the terms, and then save your changes.

You should get sent to a page that looks like this, with your personal information on the right side:

You’ll then be on a page that briefly explains what Income-Driven Repayment Plans are. Click the green “Start Application” button if you’re ready to apply, or use the link above the button to preview the application to make sure you have everything you need.

As you can see from step 2, the most important information to have on hand when filling out the application is your Adjusted Gross Income (AGI). The application allows you to import that information using the IRS Data Retrieval Tool, but it’s good to be aware of in case there’s a discrepancy.

If you’re unable to use the IRS Data Retrieval Tool, you’ll have to fill out a paper application. There’s another note that says: “If you are married, file a joint federal tax return with your spouse, and have separated from your spouse or can no longer access your spouse’s income information, then do not complete this request on StudentLoans.gov. Instead, call your servicer and request special instructions.”

Assuming you can continue, you’ll notice the application is divided into four parts: Application Information, Income Information, Personal Information, and Review & Sign.

Application information should take you seconds to fill out:

Next up is importing your income information from the IRS. Click “Link to IRS” to continue with your application:

You’ll be taken to IRS.gov, and you’ll find some of your basic information is already filled out. Complete the rest of the application as needed.

Once that’s done, you have the option to transfer the information over to your application. Review your AGI before transferring to ensure that it’s accurate.

When you’re back to the application, you’ll be asked if your income has drastically changed since you filed your last tax return – choose yes or no depending on your situation.

At this point during the application process, you’ll see which repayment plans you qualify for (if any). As REPAYE doesn’t have income eligibility requirements, you should see estimated monthly payment amounts listed there. Double check that the “current loan balance” listed for your student loans is correct, too.

If you’re not familiar with Income-Driven Repayment Plans, take a moment to look at the explanations about each on this page. Several questions are answered in the “more information” links:

Happy with your results? Then you can scroll to the bottom and choose to enroll in the plan that will grant you the lowest monthly payment amount, or manually select which repayment plan you want to be considered for.

You’ll notice that your loan servicer is mentioned here. As an alternative to filling out this application, you can call your loan servicer and request to be put on a different repayment plan as well. They’ll be able to educate you on the options available so you can make the best repayment decision for your situation.

Once you move on, you’ll be asked to review your personal information such as your address, email, and phone number. Make sure these are all up to date before continuing.

You’ll have one final chance to review all the information you’ve given, and there are additional notes at the bottom if you want to read the “fine print.” If all the information is accurate, electronically sign the application and submit it for consideration.

Overall, the application isn’t very difficult to fill out – it took me around 10 minutes. Take your time in understanding what you’re signing up for, and reach out to your student loan servicer if you have any questions about the different repayment plans available. Keep tabs on your student loan accounts as well – it may take some time for the new payments to go into effect, and you don’t want to accidentally miss a payment or pay less while your request is processing.

Did You Get Approved? You’ll Have to Reapply Next Year

One last thing – if you’re approved for an Income-Driven Repayment Plan, you’ll need to “recertify” your income each year. This makes sense, since your payments are based off of your AGI. If it changes, your monthly payment will change.

You’ll go through the exact same process, but be sure to set a reminder for yourself so you don’t forget to renew.